Making a market in talent

Talent management is an increasingly important component in business planning, but as McKinsey’s Lowell Bryan writes, few companies dedicate the resources required to make it work

Talent management is an increasingly important component in business planning, but as McKinseys LowellBryan writes, few companies dedicate the resources required to make it work

Savvy companies understand the competitive value of talented people and spend considerable time identifying and recruiting high calibre individuals wherever they can be found. The trouble is that too many companies pay too little attention to allocating their internal talent resources effectively. Few companies use talented people in a competitively advantageous way – by maximising their visibility and mobility and creating work experiences that help them feed and develop their expertise. Many a frustrated manager has searched in vain for the right person for a particular job, knowing that he or she works somewhere in the company. And many talented people have had the experience of getting stuck in a dead-end corner of a company, never finding the right experiences and challenges to grow and, finally, bailing out.

Companies with enlightened talent management policies have higher returns on sales, investments, assets and equity. But most large companies aren’t set up to allocate talent easily across the traditional organisational silos that stand as their most prominent structural feature.

Fortunately, some of the largest and most talent-driven companies are beginning to shatter the old orthodoxies. By developing internal talent marketplaces, these companies are giving managers the best opportunity to mobilise the talent they need for success while giving the most talented people better opportunities to utilise and develop that talent.

Like knowledge markets, talent markets become strong by leveraging individual self-interest to drive enterprise-wide collaboration rather than by relying on top down mandates to rotate jobs. The goal isn’t simply to clear the market but to help a company get its work done more effectively and to increase the value and allegiance of talented workers by expanding their company-specific knowledge. Many of these companies also find that allocating talent effectively can make an enormous difference to important outcomes, such as profit per employee.

Stuck in silos

Most companies typically allocate roles through personal connections and transactions between individual bosses and individual employees or within small groups. Managers find it difficult to know who among a company’s talented workers would be the best person for an available position; ditto for talented people who want to know what opportunities exist around the company and who they might like to work with.

It is common that senior managers or HR departments are expected to create opportunities for the most talented people through formal job rotations and career development policies. It may foster talent management within a particular silo, but when resources and synergies across silos are required, the conventional company is hamstrung.

Some of its people may have specific knowledge but lack breadth. Others may have the requisite knowledge but lack project-management skills (or vice versa). Since the company’s employees were hired for conventional work, they may not have sufficient intrinsic skills – personal leadership, creativity or even raw intellect – to do the job. Frustration runs high, since employees who don’t want an assignment may get it, while those who might want it are either unaware of the opportunity or not invited to apply.

Some companies have tried to use the corporate HR office to hire, train and promote talent as “corporate property”. Such efforts are not only generally restricted to a few hundred people but also usually develop people for specific functions, not broad roles. Employees with diverse skills, knowledge or entrepreneurial self-directed instincts are often neglected.

The fact is that such traditional hierarchical models, which “push” resources to where companies deem them to be needed most, are proving much less efficient in deploying and developing talent and should be replaced by approaches that instead “pull” knowledge and talent. A marketplace – a talent marketplace – is one such effective device for managing talent in today’s increasingly fluid business environment.

Benefits and challenges

Self-directed, talented people benefit considerably from such a market: the more talented they are, the greater the demand for their services and the better their opportunities will be. Highly talented people are less likely to be blocked by less talented bosses taking credit for their work. Better opportunities will ensure that job experiences challenge these employees, who in the process develop more quickly. Broadening their exposure to the organisation also helps them to develop a more extensive network of contacts to share reputations and information.

Such self-directed and talented people are the very ones an enterprise is at most risk of losing, since they are the most likely to be actively testing external talent markets to find more attractive opportunities.

At the same time, senior people who are pursuing important opportunities will have a greater pool of talent to draw upon, with a more diverse range of skills to tap. People who acquire reputations for developing talent will have a greater likelihood of attracting more and better job applicants, while “people eaters” will have trouble. But the real beneficiary is the company, which wins by getting far better matches between its job opportunities and its most talented people and by gaining far greater transparency into shortages and excess supplies of talent.

Of course, talent marketplaces also present challenges. In companies with well-established organisational silos, the cultural changes will be enormous. Here, a talent marketplace may be only part of an effort to integrate more broadly.

Some companies may need separate marketplaces for different skill sets (for instance, one for project managers and one for industrial engineers). Other companies, particularly those that already view talent as corporate rather than business unit property, will find the transition to talent marketplaces much more natural for all. Making sure that the right infrastructure of brokers, standardised performance reviews and protocols exists is no small task.

But for the right companies, the benefits can easily outweigh the costs. Given an opportunity to develop and hone skills, top talent will be more likely to stay in the company. Talented people who have a broad base of experience specific to it can grow into its future leaders.

A talent marketplace can’t be built easily on the foundations of traditional, siloed organisational structures. But for large, growing and complex companies that know talented individuals may be their most powerful competitive asset, talent markets represent the cutting edge of resource allocation

Talent markets in action

How might talent market transactions work? A certain global corporation has such a company-wide talent marketplace; it focuses on employees from lower management to vice president. The process begins when all open opportunities are posted on an internal website for a minimum of one or two weeks. Employees who have fulfilled the time commitment in their current job contracts can apply for a new job by using the online system to submit an application that responds to the requirements in the job description. The manager of the employment opportunity can also search an electronic database for candidates who haven't applied.

The manager of the new position screens applications and chooses a subset of the group to interview. An HR professional helps with the screening and ensures that the manager has a balanced group of candidates. In the end, the manager informs all of them of the decision. The winner, of course, receives a contract, which specifies the minimum time he or she is required to hold the assignment before applying for a new position. This matching process is more automated for lower job bands and more intermediated for senior roles

Three important design features further support this talent marketplace. First, performance evaluations, which are conducted across the company, have several standardised components that promote comparisons among candidates. To help the market function smoothly, jobs have minimum time commitments (usually one year for lower-level managers and three for vice presidents) to ensure that managers don't have to scramble to fill positions before the people who hold them have finished the job. Finally, enterprise-wide standards (such as salary bands) are defined for all levels, from entry through senior leadership, thus facilitating comparisons across the company.

Lowell Bryan is a director of McKinsey & Company in its New York office. This is an extract from ‘Making a market in talent’ from The McKinsey Quarterly 2006, Number 2. www.mckinseyquarterly.com.

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